Legal Update: “Consultant” to employer company held criminally liable for non-payment of wages

25Oct2022

Introduction

Any employer who, “wilfully and without reasonable excuse”, fails to pay wages to an employee within 7 days of the wage period or date of termination of employment may commit an offence under section 63C of the Employment Ordinance (the “EO”). The punishment can be severe, with a fine up to HK$350,000 and imprisonment up to 3 years.

The criminal liability may extend to the senior officers of an employer under section 64B(1) of the EO, which provides that:-

Where an offence under section 63B or 63C committed by a body corporate is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of, any director, manager, secretary or other similar officer of the body corporate, the director, manager, secretary or other similar officer shall be guilty of the like offence.” [underlined is our emphasis]

Case background

In a recent judgment handed down in the case of 香港特別行政區 訴 李忠山 (HCMA 499/2021), the High Court dismissed an appeal against the conviction of a former director of a Company (the “Defendant”), who was fined a total of HK$80,000 for the Company’s non-payment of wages to employees in breach of the Employment Ordinance.

The Defendant resigned as a director of the Company in 2017 and subsequently became its Company Secretary and Director of Operations. The outstanding wages relate to the periods in December 2019 and January 2020.

Liability issue

The Defendant sought to argue that he was not the ultimate decision maker in the operation of the Company and, in recent years, had only worked and been engaged as its “consultant”. He was not fully involved in the Company, merely consultant to the directors. He argued that, therefore, he should not be held liable.

The Court agreed with the decision of the lower court that the Defendant’s argument is not credible or reasonable as he had executed documents on behalf of the Company in the capacity of a “director”. It was also held that the Defendant was aware of the financial situation of the Company.

In any event, the Court considered that as matter of fact the Defendant was acting a senior officer, was involved in decisions and had de facto decision making power in the Company, and falls within the scope of “director, manager, secretary or other similar officer of the body corporate” in section 64B(1) of the EO. It also remarked that to limit the scope of the provision to only the ultimate decision maker of the Company will be to defeat the legislative purpose to ensure employees are paid on time.

The Court held that the Defendant’s challenge of his liability fails.

Defence of “reasonable excuse”

In defence of the charges, the Defendant argued that the Company was in financial difficulty and he was relying on the promise of another director of the Company about potential receipt of funding at a later time. The Court referred to the case of HKSAR v Wong Yuk Tung [2011] 1 HKC 409 which held that financial difficulties do not qualify as a “reasonable excuse”.

In fact, as noted by the Court from the bank records, the company had about HK$1 million in the bank account which could have been used to pay the wages of the employees. The Court referred to the case of 香港特別行政區 訴 李鳳貞 [2012] 3 HKLRD 366 which held that if a company has the financial ability to pay its employees but chooses to maintain its operation instead, the financial difficulties cannot amount to a “reasonable excuse”.

The Court held that the Defendant cannot establish the defence of “reasonable excuse” to the offence in question.

Conclusions

It is important for an employer to ensure that it pays the correct amount of wages to its employees on time. However, it is just as important, as the above case demonstrates, for those who are managing the company to ensure that it discharges the statutory obligation of an employer under the EO.

Otherwise, in the absence of “reasonable excuse” (which may arise in limited circumstances), the senior officers of an employer may be at risk of criminal prosecution and face severe criminal consequences.

All employers and its officers should comply with the provisions of EO and consider seeking legal advice as soon as possible if there are disputes or concerns about any potential breach of the law. Whether someone is a “director, manager, secretary or other similar officer” will be decided as a matter of fact, and a person involved in management and the decision making relevant to the offence, no matter what their title.

Russell Bennett and Mark Chiu

For more information on employment matters, please contact:

Russell Bennett
Partner | Email

Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.